SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 0-17541
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8-9 Commercial Street, Hudson, New Hampshire 03051-3907
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603)595-7000
________________________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of October 15, 1997,
there were 31,781,622 shares outstanding of the Registrant's common stock, $.01
par value per share.
<PAGE>
PRESSTEK, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of
September 27, 1997 (unaudited)
and December 28, 1996 3
Statements of Income for the three and nine month
periods ended September 27, 1997 and September 28, 1996
(unaudited) 4
Statements of Cash Flows for the nine month periods
ended September 27, 1997 and September 28, 1996
(unaudited) 5
Notes to Financial Statements
(unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures
about Market Risk -- (Not applicable) --
PART II OTHER INFORMATION 20
Item 1 Legal Proceedings
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures 22
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
September 27, December 28,
1997 1996
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,694,492 $ 3,530,866
Marketable securities 3,073,971 6,602,854
Accounts receivable, net of allowance
for doubtful accounts of $222,000
in 1997 and $184,000 in 1996 24,091,213 17,306,020
Inventory 13,431,736 10,639,657
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,317,195 1,625,137
Other current assets 465,931 855,287
------------ ------------
Total current assets 45,074,538 40,559,821
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 2,426,827 2,426,827
Buildings under construction 14,697,482 3,716,174
Machinery and equipment 26,433,183 14,574,637
Furniture and fixtures 989,366 681,648
Leasehold improvements 2,573,308 2,514,102
Other 34,498 34,498
------------ ------------
Total 47,154,664 23,947,886
Less accumulated depreciation and amortization (5,613,314) (4,230,674)
------------ ------------
Property, plant and equipment, net 41,541,350 19,717,212
------------ ------------
OTHER ASSETS:
Goodwill, net 5,901,204 6,144,819
Patent applications costs and
license rights, net 1,882,285 1,704,406
Software developments costs, net 106,641 546,838
Other 241,844 150,000
------------ ------------
Total other assets 8,131,974 8,546,063
------------ ------------
TOTAL $ 94,747,862 $ 68,823,096
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 5,200,000 $ --
Accounts payable 9,187,269 8,332,558
Accrued expenses 1,308,123 802,692
Accrued salaries and employee benefits 780,752 686,090
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 1,355,130
------------ ------------
Total current liabilities 16,476,144 11,176,470
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 283,823 204,104
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or
outstanding -- --
Common stock, $.01 par value; authorized
75,000,000 shares; issued and outstanding
31,751,960 shares at September 27, 1997;
30,784,552 shares at December 28, 1996 317,520 307,846
Additional paid-in capital 59,361,246 49,034,195
Unrealized loss on marketable securities, net (11,116) (42,911)
Retained earnings 18,320,245 8,143,392
------------ ------------
Stockholders' equity 77,987,895 57,442,522
------------ ------------
TOTAL $ 94,747,862 $ 68,823,096
============ ============
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 27, 1997 September 28, 1996 September 27, 1997 September 28, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 19,520,814 $ 7,906,582 $ 51,843,996 $ 23,359,224
Royalties and fees from licensees 4,772,910 4,459,562 13,353,585 11,891,342
------------ ------------ ------------ ------------
Total revenues 24,293,724 12,366,144 65,197,581 35,250,566
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 12,191,210 5,024,451 32,739,979 15,250,401
Engineering and product development 2,895,163 2,430,467 7,706,174 6,477,524
Marketing 1,311,244 514,120 3,163,840 1,695,910
General and administrative 1,612,402 1,711,410 4,577,496 4,468,041
------------ ------------ ------------ ------------
Total costs and expenses 18,010,019 9,680,448 48,187,489 27,891,876
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 6,283,705 2,685,696 17,010,092 7,358,690
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest 93,059 157,257 308,562 630,646
Other, net 32,656 (11,926) (491,801) (142,175)
------------ ------------ ------------ ------------
Total other income (expense) - net 125,715 145,331 (183,239) 488,471
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,409,420 2,831,027 16,826,853 7,847,161
PROVISION FOR INCOME TAXES 2,345,000 1,000,000 6,650,000 3,080,000
------------ ------------ ------------ ------------
NET INCOME $ 4,064,420 $ 1,831,027 $ 10,176,853 $ 4,767,161
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 33,472,324 32,917,596 33,012,136 33,021,974
============ ============ ============ ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .12 $ .06 $ .31 $ .14
============ ============ ============ ============
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 27, September 28,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 10,176,853 $ 4,767,161
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit arising from stock option deductions 6,245,000 2,972,000
Depreciation 1,364,425 806,279
Amortization 728,590 542,312
Provision for warranty and other costs 1,453,174 493,518
Other, net 310,412 226,141
(Increase) decrease in:
Accounts receivable (7,483,193) (5,027,733)
Inventory (2,792,079) (2,814,781)
Costs and estimated earnings in excess of
billings on uncompleted contracts 307,942 (696,427)
Other current assets 389,359 (25,828)
Increase (decrease) in:
Accounts payable and accrued expenses 511,968 1,613,072
Accrued salaries and employee benefits 94,662 (45,510)
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,355,130) (687,325)
------------ ------------
Net cash provided by operating activities 9,951,983 2,122,879
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired -- (7,456,020)
Purchases of property and equipment (23,260,297) (8,325,028)
Proceeds from sale of equipment 1,200 47,000
Increase in other assets (314,501) (694,466)
Sales and maturities of marketable securities 3,493,516 3,500,000
Purchases of marketable securities -- (6,956,117)
------------ ------------
Net cash used for investing activities (20,080,082) (19,884,631)
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock
and warrants 4,091,725 22,602,910
Proceeds from line of credit 5,200,000 --
------------ ------------
Net cash provided by financing activities 9,291,725 22,602,910
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (836,374) 4,841,158
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 3,530,866 3,628,021
------------ ------------
END OF PERIOD $ 2,694,492 $ 8,469,179
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 99,553 $ --
============ ============
Income taxes $ 90,406 $ 45,000
============ ============
</TABLE>
See notes to financial statements
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<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 27, 1997
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Rule 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
year ended December 28, 1996. The December 28, 1996 information has been derived
directly from the annual financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments were normal and recurring.
Presstek, Inc. (the "Company"), which was incorporated in the State of
Delaware in September 1987, develops, manufactures, and markets proprietary,
digital imaging technologies and systems, and non-photographic thermally based
consumables (the "Direct Imaging" technologies) primarily to the graphic arts
and related imaging industries. The Company's current Direct Imaging
technologies, referred to as PEARL(R), permit the direct digital imaging of the
Company's thermal printing plates which eliminate the need for photosensitive
materials and the hazardous waste by-products and effluents usually associated
with these processes.
Revenues generated under the Company's agreements with Heidelberger
Druckmaschinen AG ("Heidelberg") and from Heidelberg distributors represented
79% and 75% of the Company's total revenues for the nine months ended September
27, 1997, and September 28, 1996, respectively.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock of Catalina Coatings, Inc., an Arizona corporation ("Catalina"). The
acquisition was accounted for as a purchase. Catalina is engaged in the
development, manufacture and sale of vacuum deposition coating equipment and the
licensing and sublicensing of patent rights with respect to a vapor deposition
process to coat moving webs of material at high speeds. The Company has
continued the business of Catalina which operates as a subsidiary of the
Company. Accordingly, the results of Catalina's operations have been included in
the Company's September 27, 1997 and September 28, 1996 financial statements.
Significant intercompany accounts and transactions have been eliminated.
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<PAGE>
Certain accounts in the 1996 financial statements have been reclassified
for comparative purposes to conform with the presentation in the September 27,
1997, financial statements.
2. INVENTORY
Inventory is valued at the lower of cost or market, with cost determined on
the first-in, first-out method. At September 27, 1997, and December 28, 1996,
inventory consisted of the following:
1997 1996
---- ----
Raw materials $ 8,354,000 $ 6,155,000
Work in process 3,110,000 3,533,000
Finished goods 1,968,000 952,000
----------- -----------
Total $13,432,000 $10,640,000
=========== ===========
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<PAGE>
3. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of Common Stock and Common Stock equivalent shares
outstanding. Common Stock equivalents represent the dilutive effect of the
assumed exercise of outstanding stock options and warrants.
On May 30, 1997, the Company's Board of Directors declared a two-for-one
common stock split, effected in the form of a 100% stock dividend, which was
paid on July 7, 1997 to holders of record on June 12, 1997. The split resulted
in the issuance of 15,549,862 new shares of common stock. All references to
average number of shares outstanding and prices per share have been restated
retroactively to reflect the split. A summary of the calculations for the three
and nine month periods ended September 27, 1997, and September 28, 1996 follows:
(In Thousands, except per share)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- --------------------------------------------
Three Months Nine Months Three Months Nine Months
-------------------- -------------------- -------------------- --------------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $ 4,064 $ 4,064 $ 10,177 $ 10,177 $ 1,831 $ 1,831 $ 4,767 $ 4,767
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding 32,661 32,659 31,752 31,697 30,590 30,590 30,618 30,618
Common equivalent shares from assumed
exercise of outstanding options and
warrants whose effect are not
antidilutive on earnings per share 1,948 1,948 2,068 2,152 3,146 3,153 3,137 3,137
Less shares assumed repurchased using
the treasury method for calculation of
net shares outstanding (1,137) (1,137) (808) (731) (818) (692) (733) (572)
-------- -------- -------- -------- -------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 33,472 33,470 33,012 33,118 32,918 33,051 33,022 33,183
======== ======== ======== ======== ======== ======== ======== ========
Net income per common and common
equivalent share $ .12 $ .12 $ .31 $ .31 $ .06 $ .06 $ .14 $ .14
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE>
4. INCOME TAXES
The components of the provision for income taxes for the three and nine
month periods ended September 27, 1997, and September 28, 1996, based upon the
estimated effective income tax rate for the full fiscal year, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
Third Nine Third Nine
Quarter Months Quarter Months
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current tax expense - State $ 10,000 $ 405,000 $ 8,000 $ 108,000
Charge in lieu of income taxes:
Federal 1,900,000 5,450,000 850,000 2,600,000
State 435,000 795,000 142,000 372,000
---------- ---------- ---------- ----------
Total provision $2,345,000 $6,650,000 $1,000,000 $3,080,000
========== ========== ========== ==========
</TABLE>
The charge in lieu of income taxes included in the third quarter and nine
months ended 1997 and 1996 relate principally to the tax benefit of stock option
deductions earned in the respective periods. The tax benefit of such stock
option deductions has been credited to stockholders' equity.
5. LINE OF CREDIT
On July 29, 1997, the Company renewed its agreement with Citizens Bank
New Hampshire for a revolving line of credit loan under which the Company may
borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary, Catalina, and secured by
its assets. Under the terms of the revolving credit agreement, the Company is
required to meet certain financial covenants on a quarterly and annual basis.
Interest on the line of credit is payable at the LIBOR rate plus 1.75% (7.41% at
September 27, 1997). The loan agreement terminates on July 31, 1999, at which
date, the entire principal and accrued interest is due and payable. As of
September 27, 1997, the Company had $5,200,000 outstanding and $4,800,000
available under the line of credit.
6. OTHER INFORMATION
The Company has completed the construction of a 70,000 square foot
manufacturing facility in Tucson, Arizona for Catalina, and is nearing
completion of the construction of a 100,000 square foot manufacturing facility
in Hudson, New Hampshire. The Hudson manufacturing facility is expected to
accommodate the Company's new plate manufacturing operations, which will utilize
a new vacuum deposition coating system currently being developed and built for
the Company by Catalina, along with the necessary plate finishing and packaging
equipment. The Company estimates that the total capital cost of these projects,
including land purchases, to be approximately $35,000,000.
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<PAGE>
Through September 27, 1997, the Company has expended approximately
$17,125,000 for land, land improvements, and construction of the two new
facilities. Approximately $10,982,000 of this total was expended during the
first nine months of 1997, and as of September 27, 1997, the Company had
outstanding purchase commitments of approximately $805,000 with respect to the
new facilities. Additionally, through September 27, 1997, the Company expended
$15,940,000 for new plate manufacturing, finishing and packaging equipment.
Approximately $8,131,000 of this total was expended during the first nine months
of 1997, and as of September 27, 1997, the Company had outstanding purchase
commitments of approximately $1,130,000 with respect to the plate manufacturing,
finishing, and packaging equipment.
Between June 28, 1996, and June 16, 1997, several class action lawsuits
were filed against the Company and certain other defendants, including, but not
limited to the Company's officers and directors. These actions have been
consolidated in the United States District Court, District of New Hampshire, and
a single consolidated amended complaint has been filed by lead counsel for the
plaintiffs. In addition, two actions have been filed derivatively, on behalf of
the Company, one in the Chancery Court of the State of Delaware and the other in
the United States District Court, District of New Hampshire, against certain of
the Company's officers and directors.
The lawsuits each contain a variety of allegations including, among other
things, that the defendants violated Section 10(b) of the Securities Exchange
Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder,
violations of Section 20(a) of the Exchange Act, common law fraud and deceit,
negligent misrepresentation and waste of corporate assets. The allegations
include claims that the Company issued false and misleading financial
statements, and failed to properly disclose (a) adverse information concerning
the Company's patents; (b) the nature and extent of the investigation by the
Securities and Exchange Commission ("Commission") with respect to activities by
certain unnamed persons and entities in connection with the securities of the
Company (c) the backlog of orders from, supply contracts with, and orders
received by its principal customer. The Company's officers and directors are
alleged to have sold the Company's common stock while in possession of material
non-public information. The plaintiffs generally are seeking to recover
unspecified damages and reimbursement of their costs and expenses incurred in
connection with the action. Moreover, the plaintiff in the derivative action in
Delaware is also seeking a return to the Company of all salaries and the value
of other remuneration paid to the defendants by the Company during the time they
were in breach of their fiduciary duties and an accounting of and/or
constructive trust on the proceeds of defendants trading activities in the
common stock.
The Company intends to vigorously defend all of the foregoing actions.
However, the outcome of any litigation is subject to
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<PAGE>
uncertainty and a successful claim against the Company could have a material
adverse effect on the Company.
In addition to the foregoing, on August 19, 1997, the Company announced
that it had reached a proposed "agreement in principle" with the staff of the
Commission which the Company believes could bring a close to the Company's
involvement in the Commission's three-year investigation into the trading of the
Company's securities. The terms of the proposed agreement must be presented to
the Commission for its approval by its staff and is subject to a detailed review
by senior staff and Commission officers prior to presentation to the Commission.
Such approval is not automatic or guaranteed.
As presently proposed, the settlement calls for the consensual entry of a
cease and desist order in which the Company, without admitting or denying
violations of the securities laws, agrees to abide by federal securities laws
and regulations in the future. The allegations by the Commission giving rise to
this matter relate to the accuracy of certain disclosures made by the Company at
various times from 1994 to 1996.
In related matters, the Company also announced that other "agreements in
principle" had been reached between the Company's Chairman of the Board, Robert
Howard, and the Commission; and between the Company's President, Robert
Verrando, and the Commission. Mr. Howard and Mr. Verrando were each represented
by their own outside counsel. These agreements are also subject to further
review and approval by the Commission and its staff. Such approval is also
neither automatic nor guaranteed.
On September 17, 1997, the Company announced that it had filed suit in the
United States District Court of New Hampshire for defamation and unfair business
practices against three individuals whom the Company alleges issued false
statements and published untrue Internet postings for the purpose of influencing
the price of the Company's common stock. The Company is seeking damages and
injunctive relief. There can be no assurance that the Company will obtain any of
the relief it is seeking in this matter.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" which is effective for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company accordingly
plans to adopt SFAS No. 128 in its January 3, 1998 annual financial statements.
The Company does not anticipate that SFAS No. 128 would have had a material
effect on the earnings per share presented, if it had been adopted in the nine
months ending September 27, 1997.
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<PAGE>
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements which are not historical facts contained in this Item 2 and
elsewhere in this Form 10-Q are forward looking statements that involve a number
of risks and uncertainties, including, but not limited to, the risks of
uncertainty of patent protection, the impact of supply and manufacturing
constraints or difficulties, possible technological obsolescence, increased
competition, litigation, and other risks detailed in the Securities and Exchange
Commission filings of Presstek, Inc. (the Company).
Results of Operations
The Company, which was incorporated in the State of Delaware in September
1987, continues to further develop and market its proprietary, digital imaging
technologies and systems, and non-photographic thermally based consumables (the
"Direct Imaging" technologies) primarily to the graphic arts and related imaging
industries. The Company's current Direct Imaging technologies, referred to as
PEARL(R), permit the direct digital imaging of the Company's thermal printing
plates which eliminate the need for photosensitive materials and the hazardous
waste by-products and effluents usually associated with these processes.
The Company continues to pursue a strategy based on alliances and
relationships with major corporations in the graphic arts and related industries
encompassing licensing, product development and commercialization,
manufacturing, marketing, distribution, sales and services. The Company and
Heidelberger Druckmaschinen AG ("Heidelberg"), the world's largest manufacturer
of printing presses and printing equipment, based in Germany, jointly developed
the first Heidelberg Direct Imaging Printing Press (the "GTO-DI") and its
successor, the four color, fully automated lithographic press, the Quickmaster
DI 46-4 ("Quickmaster DI") to take full advantage of the Company's improved
implementation of its Direct Imaging technologies. The Quickmaster DI press was
introduced by Heidelberg in May 1995 to replace the GTO-DI, which is no longer
being produced. The Company also has an agreement with the Adast Adamov Company,
a manufacturer of offset lithographic presses. This agreement has resulted in
the use of the Company's Direct Imaging technologies on a larger format (19" x
26") multicolor press. Shipments of the Omni Adast Direct Imaging systems began
in December 1996. In addition, Nilpeter A/S of Denmark has announced the
introduction of an offset label press that utilizes the Company's Direct Imaging
technology. In September of 1997, at a major printing industry trade show called
Print '97, the Company demonstrated a new thermal plate technology for use on
offset presses equipped with dampening (wet) systems. This new thermal
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<PAGE>
plate, referred to as PEARLgold(TM), uses thin film manufacturing technologies
developed, in part, through the Company's use of vacuum deposition systems
manufactured by Catalina. The Company expects to commercialize this product in
the first quarter of 1998.
During 1996, the Company began shipments of the PEARLsetter(TM), a
computer-to-plate imaging device that images both the Company's wet and dry
thermally based offset printing plates. Other systems are under development,
which will use the Company's imaging and plate technology in a broader range of
printing applications with companies such as Alcoa Packaging Equipment.
On February 15, 1996, the Company acquired 90% of the outstanding common
stock of Catalina Coatings, Inc., an Arizona corporation ("Catalina"). The
acquisition was accounted for as a purchase. Catalina is engaged in the
development, manufacture and sale of vacuum deposition coating equipment and the
licensing and sublicensing of patent rights with respect to a vapor deposition
process to coat moving webs of material at high speeds. The Company has
continued the business of Catalina which operates as a subsidiary of the
Company. Accordingly, the results of Catalina's operations have been included in
the Company's September 27, 1997 and September 28, 1996 financial statements.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the third quarters of 1997 and
1996 ended on September 27, 1997, and September 28, 1996, respectively.
On May 30, 1997, the Company's Board of Directors declared a two-for-one
common stock split, effected in the form of a 100% stock dividend, which was
paid on July 7, 1997 to holders of record on June 12, 1997. The split resulted
in the issuance of 15,549,862 new shares of common stock. All references to
average number of shares outstanding and prices per share have been restated
retroactively to reflect the split.
Revenues
Revenues for the quarters ended September 27, 1997 and September 28, 1996
of $24,294,000 and $12,366,000 consisted of product sales, royalties, fees and
other reimbursements. Revenues for the third quarter of 1997 increased
$11,928,000 or 96% compared to the third quarter of 1996. For the first nine
months of 1997 and 1996, revenues totaled $65,198,000 and $35,251,000,
respectively. Revenues for the first nine months of 1997 increased $29,947,000
or 85% compared to the first nine months of 1996.
Product sales increased $11,614,000 and $28,485,000, respectively,
comparing the three and nine month periods in 1997 with the same periods in
1996. These increases were primarily a result of volume increases in sales by
the Company of Direct Imaging systems used in the Quickmaster DI, sales of the
PEARLsetter(TM), as well as volume increases in consumable sales.
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<PAGE>
Royalties and fees from licensees increased $313,000 and $1,463,000,
respectively, in the third quarter and first nine months of 1997 compared to the
same periods in 1996. Comparing the third quarter and first nine months of 1997
to the same periods in 1996, royalty increases of $3,148,000 and $7,464,000 were
offset by reductions of $2,835,000 and $6,001,000, respectively, in engineering
and other fees primarily received from Heidelberg. Included in the first nine
months of 1997 were certain fees related to the Company's agreement to license
its on-press imaging patents to Scitex Corporation Ltd.
Engineering and other fees are based primarily on amounts annually agreed
upon between the Company and Heidelberg. No significant fees have been
negotiated for 1997, and there can be no assurance that the Company will receive
any significant fees from Heidelberg in the current fiscal year. Revenues
generated under the Company's agreements with Heidelberg and from Heidelberg
distributors represented 79% and 75% of total revenues for the nine month
periods ended September 27, 1997 and September 28, 1996, respectively.
Heidelberg has indicated to the Company that the substantial backlog that
existed for its Quickmaster DI, which uses the Company's Direct Imaging
technology, has now been brought to normal levels. According to Heidelberg,
future production levels will be based on worldwide order requirements. The
Company, therefore, assumes that the current production rate of its Direct
Imaging system used in the Quickmaster DI press will be reduced beginning in the
first quarter 1998.
Although the Company expects its Heidelberg based revenues for 1998 to be
reduced by the anticipated production decrease of Quickmaster DIs, it expects,
based on conversations with Heidelberg, to obtain higher prices for the Direct
Imaging systems sold to Heidelberg for use in the Quickmaster DI. The Company
believes these higher prices will mitigate the impact of fewer units being
shipped. At the same time, the Company expects to ship higher volumes of its
other Direct Imaging products and its proprietary thermal plates in 1998 as
compared to 1997, all of which should minimize the impact of the anticipated
1998 Heidelberg production plan.
Cost of Products Sold
Costs of products sold for the third quarter and first nine months of 1997
totaled $12,191,000 and $32,740,000 compared to $5,024,000 and $15,250,000 for
the same periods in 1996. These costs consist of the material, labor and
overhead associated with product sales, as well as future warranty costs. The
increases in such costs comparing the third quarter and the first nine months of
1997 with the comparable periods in 1996 related primarily to corresponding
volume increases in product sales. The improvement in the gross margin on
product sales to 37% for the first nine months of 1997 from 35% in the
comparable period in 1996 resulted primarily from a change in product mix and
certain volume related manufacturing efficiencies.
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<PAGE>
Engineering and Product Development
Engineering and product development expenses for the third quarter and
first nine months of 1997 totaled $2,895,000 and $7,706,000 compared to
$2,430,000 and $6,478,000 for the same periods in 1996. The increases of
$465,000 or 19% for the third quarter and $1,228,000 or 19% for the first nine
months of 1997 resulted principally from increased expenditures for parts,
supplies, labor and contracted services related to the Company's PEARL
technology, as well as other product development efforts including the Company's
PEARLgold plates.
Marketing
Marketing expenses for the third quarter and first nine months of 1997
totaled $1,311,000 and $3,164,000 compared to $514,000 and $1,696,000 for the
same periods in 1996. The increases for the third quarter and first nine months
of 1997 of $797,000 or 155% and $1,468,000 or 87%, respectively, related
principally to increased expenditures for additional personnel and related
costs, as well as promotional activities and trade shows.
General and Administrative
General and Administrative expenses for the third quarter and first nine
months of 1997 totaled $1,612,000 and $4,577,000 compared to $1,711,000 and
$4,468,000 for the same periods in 1996.
Other Income and Expense
Dividend and interest income earned on the Company's cash and investments
decreased $64,000 for the third quarter and $322,000 for the first nine months
of 1997 compared to the same periods in 1996 principally as a result of the
decreased funds available for investment.
The increase in other expenses of $350,000 for the first nine months of
1997, compared to the same period in 1996, related primarily to foreign exchange
losses incurred on certain receivables from Heidelberg during the 1997 period.
Income Taxes
The provisions for income taxes for the third quarter and nine months ended
September 27, 1997 and September 28, 1996 represent principally charges in lieu
of income taxes relating to the tax benefit of stock option deductions earned
during the periods. The tax benefit of such stock option deductions has been
credited to stockholders' equity.
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<PAGE>
Net Income
As a result of the foregoing, the Company had net income of $4,064,000 and
$10,177,000 for the third quarter and first nine months of 1997, compared to net
income of $1,831,000 and $4,767,000 for the same periods in 1996. The operations
of Catalina did not have a material effect on net income for the nine months
ended September 27, 1997, and September 28, 1996.
Liquidity and Capital Resources
At September 27, 1997, the Company had working capital of $28,598,000, a
decrease of $785,000 as compared to working capital of $29,383,000 at December
28, 1996. This decrease was primarily attributed to the Company's additions to
property, plant and equipment of $23,260,000, offset in part by net income from
operations of $10,177,000, plus noncash items of $10,102,000, including the tax
benefit arising from stock option deductions of $6,245,000, and depreciation and
amortization of $2,093,000, and the proceeds from the issuances of common stock
of $4,092,000.
Net cash provided by operating activities of $9,952,000 for the nine months
ended September 27, 1997, resulted primarily from net income from operations of
$10,177,000 plus noncash items totaling $10,102,000 ($6,245,000 of which relates
to the tax benefit arising from stock option deductions) offset by increases in
inventory and accounts receivable of $2,792,000 and $7,483,000, respectively.
Net cash used for investing activities of $20,080,000 for the nine months
ended September 27, 1997, resulted primarily from additions to property, plant
and equipment used in the Company's business of $23,260,000, offset by the
proceeds of sales of marketable securities of $3,494,000.
Net cash provided by financing activities during the nine months ended
September 27, 1997, totaled $9,292,000, and consisted of borrowings under the
Company's line of credit of $5,200,000 and the sale of Common Stock incident to
the exercise of various stock options of $4,092,000.
The Company has completed the construction of a 70,000 square foot facility
in Tucson, Arizona for Catalina, and is nearing completion of the construction
of a 100,000 square foot manufacturing facility in Hudson, New Hampshire. The
Hudson manufacturing facility is expected to accommodate the Company's new plate
manufacturing operations, which will utilize a new vacuum deposition coating
system currently being developed and built for the Company by Catalina, along
with the necessary plate finishing and packaging equipment. The Company
estimates that the total capital cost of these projects, including land
purchases, to be approximately $35,000,000.
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<PAGE>
Through September 27, 1997, the Company has expended approximately
$17,125,000 for land, land improvements, and construction of the two new
facilities. Approximately $10,982,000 of this total was expended during the
first nine months of 1997, and as of September 27, 1997, the Company had
outstanding purchase commitments of approximately $805,000 with respect to the
new facilities. Additionally, through September 27, 1997, the Company expended
$15,940,000 for new plate manufacturing, finishing, and packaging equipment.
Approximately $8,131,000 of this total was expended during the first nine months
of 1997, and as of September 27, 1997, the Company had outstanding purchase
commitments of approximately $1,130,000 with respect to the plate manufacturing,
finishing, and packaging equipment.
On July 29, 1997, the Company renewed its agreement with Citizens Bank New
Hampshire for a revolving line of credit loan under which the Company may borrow
a maximum of $10,000,000 for working capital requirements and general corporate
purposes. Borrowings are secured by substantially all of the Company's assets
and are guaranteed by the Company's subsidiary, Catalina and secured by its
assets. Under the terms of the revolving credit agreement, the Company is
required to meet certain financial covenants on a quarterly and annual basis.
Interest on the line of credit is payable at the LIBOR rate plus 1.75% (7.41% at
September 27, 1997). The loan agreement terminates on July 31, 1999, at which
date, the entire principal and accrued interest is due and payable. As of
September 27, 1997, the Company had $5,200,000 outstanding and $4,800,000
available under the line of credit.
The Company continues to explore various long term funding options with
respect to financing the cost of its new facilities and plate manufacturing
equipment. There can be no assurance that the Company can obtain any necessary
financing for its new facilities and plate manufacturing equipment. The Company
believes that existing funds and the funds available under its current line of
credit will be sufficient to satisfy working capital requirements in the
foreseeable future.
The Company has entered into three Purchase and Sale Agreements for the
sale of certain parcels of land located in Hudson, New Hampshire. The land is
part of a 65 acre parcel which was purchased in August 1996 and has subsequently
been subdivided. The total cash expected to be generated by the sale of these
three parcels is approximately $1,000,000, and the Company anticipates the
completion of the sales to occur in the fourth quarter.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
- 18 -
<PAGE>
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company accordingly
plans to adopt SFAS No. 128 in its January 3, 1998 annual financial statements.
The Company does not anticipate that SFAS No. 128 would have had a material
effect on the earnings per share presented, if it had been adopted in the first
nine months ended September 27, 1997.
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Between June 29, 1996 and June 16, 1997, several class action lawsuits were
filed against the Company and certain other defendants, including, but not
limited to, the Company's executive officers and certain of its directors. These
actions have been consolidated in the United States District Court, District of
New Hampshire. In addition, two actions have been filed derivatively, on behalf
of the Company, one in the Chancery Court of the State of Delaware and the other
in the United States District Court, District of New Hampshire, against certain
of the Company's officers and directors. See Note 6 of Notes to the Financial
Statements included in this Form 10-Q, Item 3 of the Company's Form 10-K for the
fiscal year ended December 28, 1996 and Item 1 of Part II of the Company's Form
10-Q for the quarter ended June 28, 1997 for further information regarding these
actions.
The Company intends to vigorously defend all of the foregoing actions.
However, the outcome of any litigation is subject to uncertainty and a
successful claim against the Company could have a material adverse effect on the
Company.
In addition to the foregoing, on August 19, 1997, the Company announced
that it has reached a proposed "agreement in principle" with the staff of the
Securities Exchange Commission ("Commission") which the Company believes could
bring a close to the Company's involvement in the Commission's three-year
investigation into the trading of the Company's securities. The terms of the
proposed agreement must be presented to the Commission for its approval by its
staff and is subject to a detailed review by senior staff and Commission
officers prior to presentation to the Commission. Such approval is not automatic
or guaranteed.
As presently proposed, the settlement calls for the consensual entry of a
cease and desist order in which the Company, without admitting or denying
violations of the securities laws, agrees to abide by federal securities laws
and regulations in the future. The allegations by the Commission giving rise to
this matter relate to the accuracy of certain disclosures made by the Company at
various times from 1994 to 1996.
In related matters, the Company also announced that other "agreements in
principle" had been reached between the Company's Chairman of the Board, Robert
Howard, and the Commission; and between the Company's President, Robert
Verrando, and the Commission. Mr. Howard and Mr. Verrando were each represented
by their own outside counsel. These agreements are also subject to further
review and approval by the Commission and its staff. Such approval is also
neither automatic nor guaranteed.
On September 17, 1997, the Company announced that it had filed suit in the
United States District Court of New Hampshire for defamation and unfair business
practices against three individuals whom the Company alleges issued false
statements and published untrue Internet postings for the purpose of influencing
the price of the Company's common stock. The Company is seeking damages and
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<PAGE>
injunctive relief. There can be no assurance that the Company will obtain any of
the relief it is seeking in this matter.
Item 5. Other Information
In September 1997, the Company adopted the Presstek, Inc. 1997 Interim
Stock Option Plan ("Plan") which provides for the grant of non-qualified options
to purchase up to 250,000 shares of common stock to persons eligible to receive
options under the Plan. The Plan provides that it will be administered by the
Board of Directors or a committee of the Board who shall determine, among other
things, the persons who shall receive options under the Plan and the number and
term of the options granted under the Plan. Options cannot be granted under the
Plan at less than the fair market value of the underlying common stock on the
date of grant.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 1997 Interim Stock Option Plan
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed for the quarter for which this
report is filed.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 7, 1997
PRESSTEK, INC.
--------------
(Registrant)
By: /s/ Richard A. Williams
--------------------------------
Richard A. Williams
Chief Executive Officer
(Duly Authorized Officer)
By: /s/ Glenn J. DiBenedetto
--------------------------------
Glenn J. DiBenedetto
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 22 -
1997 INTERIM STOCK OPTION PLAN
OF
PRESSTEK, INC.
1. Purpose
Presstek, Inc. (the "Company") desires to attract and retain the best
available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company and its stockholders. By
affording employees and other persons the opportunity to acquire proprietary
interests in the Company and by providing them incentives to put forth maximum
efforts for the success of the Company's business, the 1997 Interim Stock Option
Plan of Presstek, Inc. (the "1997 Plan") is expected to contribute to the
attainment of those objectives.
2. Scope and Duration
Options granted under the 1997 Plan ("options") shall be nonqualified stock
options, and not "incentive stock options" as provided in the Internal Revenue
Code of 1986, as amended. The maximum aggregate number of shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), as to
which options may be granted from time to time under the 1997 Plan is 250,000
shares, which shares may be, in whole or in part, authorized but unissued shares
or shares reacquired by the Company. If an option shall expire, terminate or be
surrendered for cancellation for any reason without having been exercised in
full, the shares represented by the option or portion thereof not so exercised
shall (unless the 1997 Plan shall have been terminated) become available for
subsequent option grants under the 1997 Plan. As provided in paragraph 12, the
1997 Plan shall become effective on September 23, 1997, and unless terminated
sooner pursuant to paragraph 13, the 1997 Plan shall terminate on September 22,
2002, and no option shall be granted hereunder after that date.
3. Administration
The 1997 Plan shall be administered by the Board of Directors of the
Company, or, at their discretion, by a committee which is appointed by the Board
of Directors to perform such function (the "Committee"). The Committee shall
consist of not less than two members of the Board of Directors, each of whom
shall serve at the pleasure of the Board of Directors and shall be a
"Non-Employee Director" as defined in Rule l6b-3 promulgated pursuant to the
Securities Exchange Act of 1934 (the "Act"). Vacancies occurring in the
membership of the Committee shall be filled by appointment by the Board of
Directors.
<PAGE>
The Board of Directors or the Committee, as the case may be, shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of the 1997 Plan, to grant options, to determine the purchase
price of the Common Stock covered by each option, the term of each option, the
persons to whom, and the time or times at which, options shall be granted and
the number of shares to be covered by each option; to interpret the 1997 Plan;
to prescribe, amend and rescind rules and regulations relating to the 1997 Plan;
to determine the terms and provisions of the option agreements (which need not
be identical) entered into in connection with options granted under the 1997
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the 1997 Plan. The Board of Directors or the Committee, as the
case may be, may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Board of Directors
or the Committee, as the case may be, or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Board of Directors or the Committee, as the case may
be, or such person may have under the 1997 Plan.
In the event of a question or controversy as to whether or not any event
has taken place, or with respect to the interpretation of a provision contained
in the 1997 Plan or any option agreement relating thereto , a determination by
the Board of Directors, or the Committee, as the case may be, that such event
has or has not occurred, or with respect to an interpretation of a provision
contained in the 1997 Plan or related option agreement, shall be binding upon
the Company and participants in the 1997 Plan.
4. Eligibility; Factors to be Considered in Granting Options
In determining the persons to whom options shall be granted and the number
of shares to be covered, the Board of Directors or the Committee, as the case
may be, shall take into account the nature of the persons' duties, their present
and potential contributions to the success of the Company and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
1997 Plan. A person who has been granted an option or options under the 1997
Plan may be granted an additional option or options, subject to such limitations
as may be imposed by the Board of Directors or the Committee, as the case may
be. An option may be granted to any person, including, but not limited to,
officers, directors, employees, independent agents, consultants and attorneys,
who the Board of Directors or the Committee, as the case may be, believes has
contributed, or will contribute, to the success of the Company or a Subsidiary.
Notwithstanding the foregoing, the maximum number of shares of Common Stock
subject to options that may be granted to any officer or director of the
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<PAGE>
Company under the 1997 Plan shall not exceed the lesser of: (i) 1% of the number
of outstanding shares of Common Stock on the date of grant, (ii) 1% of the total
voting power of the Company's outstanding voting securities on the date of
grant, or (iii) 25,000 shares.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors or the Committee, as the case may be and
shall not be less than 100% of the Fair Market Value (as defined in paragraph 14
below) of a share of the Common Stock on the date on which the option is
granted. Such price shall be subject to adjustment as provided in Paragraph 11
below. The Board of Directors or the Committee, as the case may be, shall
determine the date on which an option is granted; in the absence of such a
determination, the date on which the Board of Directors or the Committee, as the
case may be, adopts a resolution granting an option shall be considered the date
on which such option is granted.
6. Term of Options
The term of each option shall be not more then ten (10) years from the date
of grant, as the Board of Directors or the Committee, as the case may be, shall
determine, subject to earlier termination as provided in paragraphs 9 and 10
below.
7. Exercise of Options
(a) Subject to the provisions of the 1997 Plan and unless otherwise
provided in the option agreement, options granted under the 1997 Plan shall
become exercisable as determined by the Board of Directors or Committee, as the
case may be. In its discretion, the Board of Directors or the Committee, as the
case may be, may, in any case or cases, prescribe that options granted under the
1997 Plan become exercisable in installments or provide that an option may be
exercisable in full immediately upon the date of its grant. The Board of
Directors or the Committee, as the case may be, may also provide that an option
granted pursuant to the 1997 Plan shall immediately become exercisable in full
upon the happening of any, including, but not limited to, any of the following
events: (i) the first purchase of shares of Common Stock pursuant to a tender
offer or exchange offer (other than an offer by the Company) for all, or any
part of, the Common Stock, (ii) the approval by the shareholder(s) of the
Company of an agreement for a merger in which the Company will not survive as an
independent, publicly owned corporation, a consolidation, or a sale, exchange or
other disposition of all or substantially all of the Company's assets, (iii)
with respect to an employee, on his 65th birthday, or (iv) with respect to an
employee, on the employee's involuntary termination from employment, except as
provided in paragraph 9 herein.
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<PAGE>
(b) Any option at any time granted under the 1997 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
paragraph 10 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the Fair Market Value of the
Company's Common Stock (as defined in paragraph 14 below) on the date of
purchase. The Company shall have no obligation to make any purchase pursuant to
such request, but if it elects to do so, such portion of the option as to which
the request is made shall be surrendered to the Company. The purchase price for
the portion of the option to be so surrendered shall be paid by the Company,
less any applicable withholding tax obligations imposed upon the Company by
reason of the purchase, at the election of the Board of Directors or the
Committee, as the case may be, either in cash or in shares of Common Stock
(valued as of the date and in the manner provided in clause (ii) above), or in
any combination of cash and Common Stock, which may consist, in whole or in
part, of shares of authorized but unissued Common Stock or shares of Common
Stock held in the Company's treasury. No fractional share of Common Stock shall
be issued or transferred and any fractional share shall be disregarded. Shares
covered by that portion of any option purchased by the Company pursuant hereto
and surrendered to the Company shall not be available for the granting of
further options under the Plan. All determinations to be made by the Company
hereunder shall be made by the Board of Directors or the Committee, as the case
may be.
(c) An option may be exercised, at any time or from time to time, as to any
or all full shares as to which the option has become exercisable until the
expiration of the period set forth in paragraph 6 hereof, by the delivery to the
Company, at its principal place of business, of (i) written notice of exercise
in the form specified by the Board of Directors or the Committee, as the case
may be, specifying the number of shares of Common Stock with respect to which
the option is being exercised and signed by the person exercising the option as
provided herein, (ii) payment of the purchase price; and (iii) payment in cash
of all withholding tax obligations imposed on the Company by reason of the
exercise of the option. Upon acceptance of such notice, receipt of payment in
full, and receipt of payment of all withholding tax obligations, the Company
shall cause to be issued a certificate representing the shares of Common Stock
purchased. In the event the person exercising the option delivers the items
specified in (i) and (ii) of this Subsection (c), but not the item specified in
(iii) hereof, if applicable, the option shall still be considered exercised upon
acceptance by the Company for the full number of shares of Common
4
<PAGE>
Stock specified in the notice of exercise but the actual number of shares issued
shall be reduced by the smallest number of whole shares of Common Stock which,
when multiplied by the Fair Market Value of the Common Stock as of the date the
option is exercised, is sufficient to satisfy the required amount of withholding
tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors or the Committee, as the case may be, may
impose, the Board of Directors or the Committee, as the case may be, may on a
case-by-case basis elect to accept payment in shares of Common Stock of the
Company which are already owned by the option holder, valued at the Fair Market
Value thereof (as defined in paragraph 14 below) on the date of exercise.
The purchase price of the shares as to which an option is exercised may
also be made by delivery to the Company by the optionee of an executed exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares sold or margined and deliver the sale or
margin loan proceeds directly to the Company to pay for the exercise price.
8. Non-Transferability of Options
Except as provided by the Board of Directors or Committee, as the case may
be, options granted under the 1997 Plan shall not be transferable otherwise than
by will or the laws of descent and distribution, and options may be exercised
during the lifetime of the optionee only by the optionee, as defined in such
employee's employment agreement. No transfer of an option by the optionee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferor
or transferees of the terms and conditions of such option.
9. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1997 Plan shall be terminated (except as set forth in
paragraph 10 below), such option may be, subject to the provisions of the 1997
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within thirty (30) days after such
termination or such longer time as provided in the employee's option agreement,
but not later than the date on which the option terminates; provided, however,
that any option which is held by an
5
<PAGE>
employee whose employment is terminated for cause or who voluntarily leaves the
employ of the Company without the Company's consent, shall, to the extent not
theretofore exercised, automatically terminate as of the date of termination of
employment. As used herein, "cause" shall (i) mean conduct amounting to fraud,
dishonesty, negligence, or engaging in competition or solicitations in
competition with the Company and breaches of any applicable employment policies
or (ii) be defined as set forth in the employment agreement between the Company
and the optionee. Options granted to employees under the 1997 Plan shall not be
affected by any change of duties or position so long as the holder continues to
be a regular employee of the Company or any of its current or future
Subsidiaries. Any option agreement or any rules and regulations relating to the
1997 Plan may contain such provisions as the Board of Directors or the
Committee, as the case may be, shall approve with reference to the determination
of the date employment terminates and the effect of leaves of absence. Nothing
in the 1997 Plan or in any option granted pursuant to the 1997 Plan shall confer
upon any employee any right to continue in the employ of the Company or any of
its Subsidiaries or parent or affiliated companies or interfere in any way with
the right of the Company or any such Subsidiary or parent or affiliated
companies to terminate such employment at any time.
10. Death or Disability of Employee
If an employee to whom an option has been granted under the 1997 Plan shall
die while employed by the Company or a Subsidiary or within thirty (30) days
after the termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1997 Plan shall be terminated as the result of
a disability, such option may be exercised, to the extent exercisable by the
employee on the date of such termination, at any time within thirty (30) days
after the date of such termination or such longer time as provided in the
employee's option agreement, but not later than the date on which the option
terminates.
11. Adjustments Upon Changes in Capitalization, Etc.
The number and class of shares issuable under the 1997 Plan and any
outstanding options shall be adjusted to prevent dilution or enlargement of
rights, including adjustments in the event of changes in the outstanding Common
Stock by reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations,
6
<PAGE>
liquidations and the like. In the event of any offer to holders of Common Stock
generally relating to the acquisition of their shares, the Board of Directors or
the Committee, as the case may be, may make such adjustment as it deems
equitable in respect of outstanding options and rights, including in its
discretion revision of outstanding options and rights so that they may be
exercisable for the consideration payable in the acquisition transaction.
12. Effective Date
The 1997 Plan shall become effective on September 23, 1997, the date of
adoption of the 1997 Plan by the Board of Directors of the Company.
13. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1997 Plan in accordance with applicable law. No suspension,
termination, modification or amendment of the 1997 Plan may, without the consent
of the employee or other person to whom an option shall theretofore have been
granted, adversely affect the rights of such employee or person under such
option.
14. Miscellaneous
As used in the 1997 Plan:
(i) The "Fair Market Value" of a share of Common Stock on any day
means: (a) if the principal market for the Common Stock is a national
securities exchange or the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), the closing sales price of the
Common Stock on such day as reported by such exchange or market system, or
on a consolidated tape reflecting transactions on such exchange or market
system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ,
the mean between the highest bid and lowest asked prices for the Common
Stock on such day as reported by the National Quotation Bureau, Inc.;
provided that if clauses (a) and (b) of this paragraph are both
inapplicable, or if no trades have been made or no quotes are available for
such day, the Fair Market Value of the Common Stock shall be determined by
the Board of Directors or the Committee, as the case may be, which
determination shall be conclusive as to the Fair Market Value of the Common
Stock.
(ii) "Subsidiary" means any corporation, fifty (50%) percent or more
of the voting stock of which is owned by the Company.
(b) The Board of Directors or the Committee, as the case may be, may
require, as a condition to the exercise of any options
7
<PAGE>
granted under the 1997 Plan, that to the extent required at the time of
exercise, (i) the shares of Common Stock reserved for purposes of the 1997 Plan
shall be duly listed, upon official notice of issuance, upon stock exchange(s)
on which the Common Stock is listed, (ii) a Registration Statement under the
Securities Act of 1933, as amended, with respect to such shares shall be
effective, and/or (iii) the person exercising such option deliver to the Company
such documents, agreements and investment and other representations as the Board
of Directors or the Committee, as the case may be, shall determine to be in the
best interests of the Company.
(c) During the term of the 1997 Plan, the Board of Directors or the
Committee, as the case may be, may offer one or more option holders the
opportunity to surrender any or all unexpired options for cancellation or
replacement. If any options are so surrendered, the Board of Directors or the
Committee, as the case may be, may then grant new options to such holders for
the same or different numbers of shares at higher or lower exercise prices than
the surrendered options. Such new options may have a different term and shall be
subject to the provisions of the 1997 Plan the same as any other option.
(d) Anything herein to the contrary notwithstanding, the Board of Directors
or the Committee, as the case may be, may impose more restrictive conditions on
the exercise of an option granted pursuant to the 1997 Plan; however, any and
all such conditions shall be specified in the option agreement limiting and
defining such option.
15. Compliance with SEC Regulations.
It is the Company's intent that the 1997 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1997 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void. All grants and exercises of
options under the 1997 Plan shall be executed in accordance with the
requirements of Section 16 of the Act, as amended, and any regulations
promulgated thereunder
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form
10-Q at September 27, 1997 and is qualified in its entirety by reference to
such financial information
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 2,694,492
<SECURITIES> 3,073,971
<RECEIVABLES> 24,313,213
<ALLOWANCES> 222,000
<INVENTORY> 13,431,736
<CURRENT-ASSETS> 45,074,538
<PP&E> 47,154,664
<DEPRECIATION> 5,613,314
<TOTAL-ASSETS> 94,747,862
<CURRENT-LIABILITIES> 16,476,144
<BONDS> 0
0
0
<COMMON> 317,520
<OTHER-SE> 77,670,375
<TOTAL-LIABILITY-AND-EQUITY> 94,747,862
<SALES> 51,843,996
<TOTAL-REVENUES> 65,197,581
<CGS> 32,739,979
<TOTAL-COSTS> 32,739,979
<OTHER-EXPENSES> 7,706,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,826,853
<INCOME-TAX> 6,650,000
<INCOME-CONTINUING> 10,176,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,176,853
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
